The Malaysian courts have recognised cryptocurrency as a security and a commodity. In the case of Luno Pte Ltd & Another v Robert Ong Thien Cheng (Civil Suit No. BA-B52NCVC-389-12/2017), the Shah Alam Sessions Court held that cryptocurrency falls within the ambit of “anything” under Section 73 of the Contracts Act 1950 (“CA 1950”) as cryptocurrency is a form of commodity with an attached value. On appeal, the Shah Alam High Court, in Robert Ong Thien Cheng v Luno Pte & Another (Civil Appeal No. 12BNCVC-91-10-2018), upheld the Sessions Court’s ruling.

Background Facts

  1. Luno Pte Ltd (“Luno”) carries on its business as an online wallet and exchange of cryptocurrencies. BitX Malaysia Sdn Bhd (“BitX Malaysia”) is a wholly-owned subsidiary of Luno. It acts as the intermediary regional operating centre of Luno which holds a bank account capable of accepting deposits from registered Luno customers in Malaysia.
  2. Robert Ong Thien Cheng (“Robert”) has been a registered user of Luno since 6 July 2017. On 30 October 2017, Robert deposited RM300,000 into the bank account held by BitX Malaysia, which was subsequently transferred into Robert’s designated Luno e-wallet.
  3. On 1 November 2017, Robert requested Luno to transfer 11.3 Bitcoins from his designated Luno e-wallet to his Bitfinex e-wallet, to which Luno complied. Bitfinex is a third-party online cryptocurrency exchange.
  4. However, on the same day, due to a technical glitch, Luno mistakenly transferred an additional 11.3 Bitcoins on top of the 11.3 Bitcoins originally requested to be transferred into Robert’s Bitfinex e-wallet (“Mistakenly Transferred Bitcoins”). Thereafter, Luno notified Robert of the Mistakenly Transferred Bitcoins by way of its email dated 2 November 2017, to which Robert acknowledged and admitted that he is required to return the Mistakenly Transferred Bitcoins.
  5. At the end of November 2017, Robert offered to return the Mistakenly Transferred Bitcoins in the form of RM300,000.00 in cash. However, Luno refused Robert’s offer due to the Bitcoin’s daily value fluctuations.
  6. Luno requested that the Mistakenly Transferred Bitcoins be returned in its original form. Despite his acknowledgement and admission to the fact that he is required to return the Mistakenly Transferred Bitcoin, Robert failed, refused and neglected to do the same.
  7. Upon Robert’s failure, refusal and neglect to return the Mistakenly Transferred Bitcoins, Luno commenced legal proceedings against Robert in the Shah Alam Sessions Court to recover the following:

(a) The Mistakenly Transferred Bitcoins in its original form; or

(b) The equivalent fiat value of the Mistakenly Transferred Bitcoins at the time of filing, which was RM810,837.00; or

(c) The equivalent fiat value of the Mistakenly Transferred Bitcoins to be calculated on the date of judgment.

Findings by the Shah Alam Sessions Court

Upon its evaluation of the facts of the case, the Sessions Court found that Robert did not have a defence to Luno’s claim for the return of the Mistakenly Transferred Bitcoin. The lack of a defence is due to the multiple opportunities offered by Luno to Robert to return the Mistakenly Transferred Bitcoins. Luno’s claim was also supported by Robert’s acknowledgement and admission that he was required to return the Mistakenly Transferred Bitcoins to Luno.

Cryptocurrency is not illegal in Malaysia

Robert had contended that cryptocurrency is illegal in Malaysia. In its response to Robert’s contention, the Sessions Court found that, although cryptocurrency is not recognised as legal tender in Malaysia, cryptocurrency is not illegal in Malaysia due to the registration of Luno as a reporting entity to Bank Negara Malaysia (Central Bank of Malaysia):

“[26] … First and foremost, whilst cryptocurrency is not recognised as legal tender in Malaysia, this does not mean that the Plaintiffs’ operation is illegal. In fact, the 1st Plaintiff is registered as a reporting entity with Bank Negara Malaysia and this is supported by contemporaneous documents.

[28] The fact that the 1st Plaintiff is registered as a reporting entity to Bank Negara on cryptocurrency is in itself proof that the 1st Plaintiff’s operations are not illegal. If the 1st Plaintiff’s operations are deemed illegal by Bank Negara, reasonably the 1st Plaintiff would not be registered as a reporting entity.

[29] This Court is of the view that there is also local legal literature expressly stating whilst cryptocurrencies are not recognised as legal tender, cryptocurrencies are not illegal in Malaysia.”

The Sessions Court further supported its finding with the fact that Bank Negara Malaysia started the initiative to have cryptocurrency exchanges registered as reporting institutions under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001. The Sessions Court stated that such registration carried a recognition by Bank Negara Malaysia that cryptocurrency carries value that may be exchanged with real money.

Robert also argued that the Mistakenly Transferred Bitcoins did not belong to Luno and BitX Malaysia, and therefore Luno and BitX Malaysia did not have any locus standi (the right to bring an action to or appear in Court). However, the Sessions Court held that this contention was invalid because the way Luno held cryptocurrency is akin to that of a bank where customers deposit monies. As such, it does not mean that, if the bank had mistakenly transferred monies into a person’s account, the bank has no locus standi to initiate an action to recover the monies.

Cryptocurrency falls within Section 73 of the CA 1950

Based on the facts and evidence of the case, the Sessions Court was satisfied that Robert did not dispute that the Mistakenly Transferred Bitcoins did not belong to him. Therefore, the Sessions Court held that Robert was bound under Section 73 of the CA 1950 to return the Mistakenly Transferred Bitcoins to Luno and BitX Malaysia based on the grounds of mistake.

For ease of reference, Section 73 of the CA 1950 is reproduced below:

“Liability of person to whom money is paid, or thing delivered by mistake or under coercion

  1. A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.”

Although cryptocurrency is not recognised as legal tender, the Sessions Court held that cryptocurrency is a form of commodity as there is value attached to cryptocurrency akin to how value is attached to shares as real money is used to purchase both cryptocurrency and shares. The Sessions Court further held that cryptocurrency falls within the ambit of the term “anything” under Section 73 of the CA 1950. Accordingly, Robert is bound under Section 73 of the CA 1950 to return the Mistakenly Transferred Bitcoins to Luno.

Subsequently, Robert appealed to the Shah Alam High Court (Civil Appeal No. 12BNCVC-91-10-2018).

Findings by the Shah Alam High Court

The crux of Robert’s appeal to the High Court was whether cryptocurrency falls within the ambit of the term “anything” under Section 73 of the CA 1950.

In the High Court, reference was made to Section 3 of the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (“CMS Order 2019”), which classified cryptocurrency as a form of security. For ease of reference, Order 3 of the CMS Order 2019 reads:

“3. Digital currency and digital token are prescribed to be securities

  1. A digital currency which-

(a) is traded in a place or on a facility where offers to sell, purchase, or exchange of, the digital currency are regularly made or accepted;

(b) a person expects a return in any form from the trading, conversion or redemption of the digital currency or the appreciation in the value of the digital currency; and

(c) is not issued or guaranteed by any government body or central banks as may be specified by the Commission,

is prescribed as securities for the purposes of securities law.”

Accordingly, the High Court upheld the Sessions Court’s finding that there is value attached to cryptocurrency in the same way as value is attached to shares.

The High Court was also of the view that the CA 1950 ought to be construed to reflect changes in modern technology and commerce, which would result in cryptocurrency falling within the ambit and application of the term “anything” under Section 73 of the CA 1950 and that the term “anything” under Section 73 of the CA 1950 is wide enough to cover cryptocurrency. As such, the High Court held that Robert is, indeed, bound to return the Mistakenly Transferred Bitcoins to Luno and BitX Malaysia.

The High Court ended its findings by stating that, up until the point the Bitcoins are assigned to a specified user, it was a pool of Bitcoins of which Luno had full custody and control, which meant that Luno is the legal and beneficial owner of the Mistakenly Transferred Bitcoins. Therefore, it was incorrect for Robert to contend that Luno did not have the requisite locus standi to commence legal proceedings against him for the recovery of the Mistakenly Transferred Bitcoins.

Conclusion

The case of Luno Pte Ltd & Another v Robert Ong Thien Cheng (Civil Suit No. BA-B52NCVC-389-12/2017) and, subsequently, its appeal (Civil Appeal No. 12BNCVC-91-10-2018) marked an important step in the development of cryptocurrencies in Malaysia. While the digital currency industry in Malaysia is still maturing, the cryptocurrency industry has been given additional legal certainty in the sense that cryptocurrency is recognised as a security and a commodity.

By Tommy Wong

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